* Move aimed at protecting payment service market - PBOC
* Tencent stock slides nearly 7 percent, CITIC bank
* Measure marks latest spat between finance sector and
By Hongmei Zhao and Heng Xie
HONG KONG/BEIJING, March 14 China's central bank
demanded on Friday that payments made by scanning a bar code
with mobile devices be halted, hitting the payment arms of
Internet companies Tencent Holdings Ltd and Alibaba
The People's Bank of China (PBOC) made its decision amid
concerns about the security of verification procedures and asked
both companies to provide detailed reports about their products.
The suspension affects the rollout of new virtual credit
cards by Tencent and Alibaba as competition intensifies in
China's e-commerce market.
Both companies announced this week they would launch cards,
which can use QR bar codes scanned by smartphones to process
payments, in partnership with China CITIC Bank Corp
. Alibaba's card launch is planned for next week.
"We have received the letter on the respective payment
business and are currently communicating with PBOC on this,"
Tencent said in a statement.
"We will fully cooperate with PBOC and submit the materials
China's online and mobile payment transactions have been
growing at a torrid pace, and consultancy McKinsey forecasts
China will overtake the United States as the world's largest
online retail economy this year.
Analysts say the halt of any new services is likely to be
temporary, as the PBOC moves to assess how customer information
is being secured.
The central bank's suspension also underscores the clash
between China's finance sector and domestic Internet companies,
which have pushed into the banks' territory by ramping up their
own financial services, offering online payment services and
wealth management products.
"This is a milestone in the innovation of China's Internet
finance, said Yi Huanhuan, deputy director at Hong Yuan
Securities Research. "The ways the Internet is used has already
reached the 'meat' of the core business of traditional banking
China's three Internet giants, which also include Baidu Inc
, have invested heavily in technologies and businesses
that make use of scanning QR codes with mobile devices to cash
in on China's 500 million smartphone and tablet users.
China's mobile payment market last year increased by more
than 700 percent, to 1.22 trillion yuan ($199 billion) in
QR codes, which can be scanned with mobile devices to
transmit web addresses, payment details or other information,
are expected to be a driving force in the mobile payment market
this year, according to Beijing-based data firm iResearch.
But the growth of the QR code system has also sparked
concern over its security, particularly for making payments.
Officials at Tencent, China's largest listed Internet
company, and Alipay, the online payment arm of e-commerce firm
Alibaba, confirmed to Reuters that they had received a notice
from the People's Bank of China (PBOC) about the move, though
they declined to be identified because they were not authorised
to speak with media.
An Alipay spokeswoman declined to give official comment. A
PBOC spokesman said the bank is asking the companies to submit
detailed reports on their procedures.
"The notice was issued all of a sudden ... This notice had a
great impact on our business," said an official from Alipay,
Alibaba's online payment affiliate, who declined to be
identified as they were not authorised to speak to the media.
The PBOC document was issued "in order to protect the
payment service market, and prevent payment risks", a source who
saw the notice told Reuters.
Shares of Tencent slid as much as 7 percent in Hong Kong
before ending down 4 percent.
China CITIC Bank Corp suspended
trading of its shares after the stock fell more than 8 percent
in Shanghai and nearly 7 percent in Hong Kong. China CITIC Bank
said on Thursday it will operate virtual credit cards with
Tencent and Alibaba.
These virtual credit cards can also be used to make payments
without a QR code on websites that support CITIC credit card
payment and on Tencent's and Alibaba's own platforms.
China CITIC Bank told Reuters it had not received any
document from the PBOC.
Analysts said other new offerings or technology could also
be at risk.
"It is a negative sign to the market. The central government
steps in to control a supposedly very free and innovative area
of business. That means even if it is an innovative segment, it
is not as free as we have anticipated," said Alex Wong, a
director at Hong Kong-based brokerage Ample Finance Group.
In February, Alipay said it handled 900 billion yuan in
mobile payment transactions from more than 100 million users
last year, completing more mobile payments than U.S.-based
PayPal and Square Inc combined. [ID:nL3N0LD07H}
The PBOC said in December it would closely monitor the
development of online financial services to ensure companies do
not cross any legal red lines.
"If the government is pushing back on the QR code thing,
it's probably a temporary thing until the government figures out
what is going on," said Michael Clendenin, managing director of
Shanghai-based RedTech Advisors.
China's Internet companies have repeatedly clashed with
entrenched interests in the finance sector, as companies such as
Tencent, Alibaba and Baidu Inc push further into their
In August, Chinese media reported that Alipay halted its
offline point of sales service for small companies.
The move came after state-owned China UnionPay, the
country's monopolistic credit card provider, put pressure on
Alipay to route the service through UnionPay's system so it
could increase its commission earnings on transactions.
Tencent and Alibaba said this week they are also applying
for licences from the bank regulator to participate in a trial
plan for privately-owned banks.